Everybody likes to have enjoyable with hypothetical “Desert Island” questions. You recognize those the place you’re sitting round with your folks asking one another what you’d take with you or maybe who you’d take with you should you solely had ONE selection and needed to be banished to an uninhabited / desert island for the remainder of your life?
In at the moment’s lesson, I wished to have a little bit of enjoyable but additionally focus on with you what I’d take with me if I might solely decide ONE buying and selling strategy for the remainder of my life. If I used to be going to a desert island (that had wonderful web connection lol) these are the buying and selling instruments that I’d take with me…
Right here’s how I’d enter the market…
If I needed to solely search for ONE worth motion sample to enter the market from, it could be a really apparent and highly effective one, one thing that after you perceive, is tough to overlook…
What I’d be on the lookout for is a pin bar or tailed bar, ideally a long-tailed pin bar. These are patterns with an clearly lengthy tail (or shadow), it doesn’t must be a “pin bar” per say, though it’s higher whether it is, however a easy tailed bar positioned correctly will work too.
Let’s have a look at some examples of what I’m on the lookout for on a day-to-day foundation available in the market concerning tailed bars and pin bar reversals:
Right here’s an instance of a long-tailed pin bar (promote sign) inside a down-trending market:
Right here’s one other instance of a long-tailed pin bar. This time, it’s a bullish long-tailed pin bar (purchase sign) that fashioned at a key assist degree available in the market:
As we will see within the subsequent instance, pin bars usually give us very simple to identify entries into highly effective developments. In actual fact, a pin bar after a pull again inside a development might be my favorite worth motion entry setup:
Subsequent, let’s take a look at a tailed bar; a bar that isn’t fairly a “pin bar” however nonetheless primarily portrays and implies the identical factor. The primary distinction is the physique (distance between open and shut) of the bar shouldn’t be fairly as small as a pin bar’s in relation to the entire size of the bar:
From the examples above, it ought to be obvious what I’d be on the lookout for if I might ONLY decide ONE entry sign to make use of for the remainder of my life. It also needs to be obvious WHY I’d select pins / tailed bars; they convey an important message about what’s more likely to occur subsequent available in the market, in a really clear and highly effective means.
For a extra detailed tutorial on tailed bars, see my tailed bar buying and selling tutorial
For a extra detailed tutorial on pin bars, see my pin bar buying and selling tutorial
Cash administration
It’s at all times amusing to me that almost all starting merchants appear nearly completely involved with their commerce entries when in truth the extra necessary a part of buying and selling is cash administration. Cash is made or misplaced relying upon how properly you handle your trades and your cash, not a lot on how properly you enter the market (though entries do play an necessary function).
No commerce entry technique or buying and selling technique could be full and not using a cash administration plan. Crucial points of cash administration for a dealer, are place sizing and danger reward. These are the cash administration elements I’d be fearful about for my “desert island” strategy.
Once I discuss place sizing, I’m referring to the variety of tons (in Foreign exchange) or the commerce quantity / variety of contracts / shares (shares) and so forth. We’re speaking concerning the SIZE of the place you’re buying and selling. Why is that this so necessary? Effectively, as a result of it determines how a lot cash you might have in danger; the bigger place, the more cash you’re risking. The opposite purpose it’s so necessary is as a result of correctly adjusting your place measurement to keep up your general 1R danger per commerce, is significant to long-term buying and selling success.
To learn extra about place sizing, take a look at my lesson on place sizing.
Danger reward is the opposite important cash administration element. This refers to discovering a commerce’s danger vs. its potential reward, which you usually need at 1 to 2 or extra (Reward at 2 occasions danger). It’s necessary to think about the potential danger / reward of any commerce earlier than you enter it, as a result of whether or not a great danger / reward is attainable might affect your determination to take the commerce or not.
Discover within the instance under, the chance is 1R, the place R = the greenback quantity you might have in danger on the commerce. On this case, the chance is the gap from the entry (pin bar low) to the cease loss (close to pin excessive) and the reward is about at 2R or 2 occasions danger. It’s necessary to attempt to get reward of no less than double your danger so that you simply make the most of winners once they come alongside and so they’re sufficiently big to offset your losers and nonetheless provide you with a revenue.
Within the instance under, we will see what it seems to be prefer to plot out the potential danger reward of a pin bar commerce. Discover I’ve custom-made the MetaTrader 4 Fibonacci instrument to point out danger vs. reward of any commerce setup. I’ve detailed how to do that in an article on the danger reward instrument, so test that out to be taught extra. Discover, this pin bar sign set off a possible 5R winner…
Day by day time frames and low-frequency
A buying and selling technique wouldn’t be full with out one thing to carry it altogether, the X-factor, so to talk. For me, that’s buying and selling day by day chart time frames in a low frequency buying and selling strategy.
This sort of buying and selling primarily signifies that we’re centered on the day by day charts and we aren’t seeking to commerce usually, as an alternative, we’re on the lookout for high-quality setups (which are usually considerably uncommon). What this does is will increase our potential win-rate per commerce and thus offers us a greater likelihood of getting cash over the long-run. It additionally permits us to extra simply maintain our feelings in test and largely eliminates the potential to over-trade, which is usually the primary factor that kills merchants’ accounts.
Within the instance under, discover the pin bar entry indicators that fashioned at a key assist degree, what I need you to essentially discover is that this was the day by day chart (as are all the opposite charts on this lesson and most of my classes). If I used to be stranded on a desert island, I might enter this commerce lengthy and let it set for 1-2 weeks and spend that point…making an attempt to construct shelter and collect meals…and are available again to an enormous revenue. Maybe a bit too hypothetical of an instance (what would you do with cash stranded on an island? Pay pirates to avoid wasting you perhaps?!), however the level continues to be legitimate – Finish-of-Day buying and selling permits you to cut back your time dedication and helps to subdue / tame your emotional responses to the market so that you’ve a greater likelihood at long-term buying and selling success, it’s a win-win!
If I used to be stranded on a desert island and will solely use one buying and selling strategy, it could be:
- Pin bars / tailed bars
- Cash administration
- Day by day charts / end-of-day strategy
It actually is so simple as the three-point plan I outlined above, so cease over-complicating it.
To be taught extra about day by day chart buying and selling and end-of-day buying and selling, take a look at these tutorials:
Easy methods to commerce ‘finish of day’ buying and selling methods
Day by day chart timeframe buying and selling tutorial
Conclusion
Whereas at the moment’s lesson dealt in a hypothetical scenario of being compelled to select one buying and selling technique to take to a desert island for the remainder of your life, the knowledge and methods mentioned will not be hypothetical in any respect.
The methods I mentioned above are how I commerce 90% of the time in my day-to-day buying and selling. The ideas are transferable throughout all varieties of markets, from Foreign exchange to futures, shares and anyplace in between. They’re most relevant to the 1-hour timeframe and above, however as mentioned, I enormously want the day by day chart timeframe to all others. So, regardless of the place you find yourself, on an island or a buying and selling desk, do not forget that the ideas mentioned right here and which can be expanded upon in my superior worth motion buying and selling course, have stood the check of time and can serve you properly in not simply surviving… however in thriving in all buying and selling environments.
What did you consider this lesson? Please share your suggestions within the feedback under!
